Core Inflation Measurement in Canada: How CIBC's Metrics Shape Policy and Investment Strategies

In the ever-evolving landscape of Canadian monetary policy, the Bank of Canada's ability to distinguish between transitory price fluctuations and persistent inflationary pressures remains a critical challenge. Core inflation metrics, designed to filter out volatile components like food and energy, have become indispensable tools for central bankers and investors alike. Among these, CIBC's preferred measure-CPIXFET (CPI excluding food, energy, and the effect of indirect taxes)-has emerged as a linchpin in both policy formulation and investment strategy.

The Methodology Behind CIBC's Core Metrics

CIBC's approach to core inflation builds on the Bank of Canada's existing frameworks but refines them for greater precision. The bank's analysts emphasize metrics like CPI-trim and CPI-median, which strip out extreme price movements to isolate underlying trends. However, CPIXFET has gained prominence for its ability to predict total inflation more reliably. By excluding volatile categories and indirect taxes, CPIXFET provides a clearer signal of persistent inflation, particularly in periods of economic uncertainty. A 2025 analysis by Scotiabank Economics found that CPIXFET outperformed CPI-trim and CPI-median in forecasting headline inflation over the 2018–2025 period, even during supply chain bottlenecks and geopolitical shocks.

The Bank of Canada, recognizing the limitations of traditional measures, has also explored enhancements such as multivariate core trend inflation and AI-driven models, as Reuters reported. Yet, CPIXFET's simplicity and robustness have made it a favored tool for policymakers. For instance, in September 2025, the Bank cited CPIXFET's subdued readings-averaging 1.2% over three months-as a key factor in its decision to cut the overnight rate by 25 basis points to 2.5%, according to a Bank of Canada press release. This move underscored the central bank's shift from inflation control to supporting growth amid trade tensions and a weakening labor market.

Policy Implications: From Rate Cuts to Strategic Reviews

The Bank of Canada's 2025–27 Strategic Plan reflects a broader embrace of adaptive inflation measurement. Governor Tiff Macklem highlighted the need to "leverage improved economic models and new data sources" to navigate a shock-prone world in the Bank of Canada's 2025–27 Strategic Plan. CIBC's advocacy for CPIXFET aligns with this vision. In early 2025, the bank forecasted 75 basis points of rate cuts, citing CPIXFET's consistent underperformance relative to headline inflation as evidence that monetary policy had become overly restrictive, according to CIBC. This analysis directly influenced the Bank's dovish pivot in March and September 2025, as policymakers sought to balance inflation targeting with growth support.

The interplay between CIBC's metrics and policy decisions is not one-sided. The Bank's own experiments with alternative measures-such as pre-excluding mortgage interest costs-have reinforced the value of CPIXFET's approach, the Bank noted on its inflation indicators page. By focusing on sectors less prone to volatility, the central bank has gained greater confidence in its ability to "look through" short-term noise, a strategy CIBC has long championed.

Investment Strategies: Navigating Inflationary Uncertainty

For investors, the implications of CIBC's core metrics are equally profound. The bank's economists have consistently advised portfolios to adjust for inflationary signals embedded in CPIXFET. For example, CIBC's 2025 investment outlook emphasized that "CPIXFET's subdued trajectory suggests fixed-income markets can remain resilient, while equities in sectors like technology and healthcare are better positioned to outperform," as set out in CIBC Investor's Edge. This insight reflects the metric's ability to filter out distortions in traditional CPI, such as spikes in energy prices or housing costs.

Moreover, CIBC's analysis of U.S. trade policy's impact on Canadian inflation has shaped asset allocation strategies. When retaliatory tariffs were removed in late 2025, CPIXFET's decline to 1.2% signaled easing pressures on consumer prices, prompting the bank to recommend increased exposure to cyclical sectors like manufacturing and construction, as reported by National Observer. Such strategic shifts highlight how core inflation metrics inform not just macroeconomic policy but also granular investment decisions.

Conclusion: A New Benchmark for Inflation Analysis

As Canada's economic landscape grows more complex, the role of refined core inflation metrics like CPIXFET becomes increasingly vital. CIBC's advocacy for these tools has not only influenced the Bank of Canada's policy trajectory but also provided investors with a clearer lens to assess risk and opportunity. While no single metric is infallible, the convergence of CIBC's insights and the central bank's adaptive strategies underscores a shared commitment to navigating inflation with precision and foresight.

In the coming years, the continued evolution of core inflation measurement-whether through AI-driven models or expanded data sources-will likely deepen this synergy. For now, CPIXFET stands as a testament to the power of innovation in economic analysis, offering a roadmap for both policymakers and investors in an era of persistent uncertainty.